Fixing the free agent compensation system

It’s like clockwork: Whenever the Yankees sign a big-name free agent, baseball writers across the country dust off the old “baseball needs a salary cap” article, change some names and numbers, send it in to their editor, and enjoy the rest of their day off. When the Yanks went bananas this year by signing Mark Teixeira, CC Sabathia and A.J. Burnett, it did reveal a major flaw in MLB’s never-ending attempt to even the playing the field, except it had nothing to do with a salary cap.

Six months before the Yanks opened their wallets, the Brewers went all in, trading four prospects (including ’07 first rounder Matt LaPorta) to the Indians for reigning AL Cy Young Award winner CC Sabathia in an attempt to secure the franchise’s first playoff berth in a quarter century. The Brew Crew made the playoffs and then made a good-faith effort to retain Sabathia’s services after the season. But they got stuck with just a second-round pick and a sandwich rounder as compensation when he bolted for the greener pastures of New York.

Doug Melvin and Co. didn’t do anything wrong. The Yanks didn’t do anything underhanded. The Brewers simply got screwed by the system out of a first round compensation pick for the best pitcher to hit the open market in nearly a decade. The Brewers aren’t the only ones to get the shaft either; the Blue Jays received just a third round pick for watching Burnett head out of town. Baseball doesn’t need a salary cap, but it does need to fix its free agent compensation system. That’s what I’m here to do.

Perhaps the biggest problem with the current system is that the compensation picks a team receives for losing a Type-A free agent are directly related to which team signs the player, but only loosely tied to the player’s actual value. I propose to solve this by making the compensation for Type-A free agent the same regardless of where they sign: two supplemental first round picks. Compensation for Type-B free agents would remain the same, a single sandwich pick. And for housekeeping purposes, I’d rename the supplemental first round the “Compensation Round” because … well … I’m sure you get the point.

The order of the compensation round would be:

First pick for Type-A’s

Second pick for Type-A’s

Pick for Type-B’s

These compensation picks would be ordered by the Elias rankings, not the reverse order of the standings as they are now. And unlike the current system, the compensation round would not need to cycle through each team before a team can pick twice. This guarantees that the team that loses the highest ranked free agent gets the first compensation pick, the team that loses the second highest ranked player gets the second pick, and so on. Ditto the Type-B’s. Now, obviously this could lead to a rather sizable compensation round, but so be it. The teams that lose the best players would be rewarded with the best compensation picks regardless of where the player signs.

So if teams are receiving compensation picks as I set forth above, what’s the penalty the other team has to pay for signing a Type-A? That’s simple: I propose they forfeit a draft pick. It doesn’t go to the team that lost the player, it just disappears as though it never existed. In addition to that, I would adjust the penalty based on how desirable the free agent is. Check it out:

Tier One: players age 31 and younger, signing team forfeits a first round pick

Tier Two: players age 32-35, signing team forfeits a second round pick

Tier Three: players age 36 and older, signing team forfeits a third round pick

The purpose of these three “age tiers” is to increase the penalty for signing a player the closer he is to his prime. A 36-year-old Raul Ibanez should not cost the same first round pick as 28-year-old Mark Teixeira. The proposed age tiers would not affect a player’s status as a Type-A free agent, ditto the compensation his former team would receive. This setup would also reduce what I call All-Star Catcher Jason Varitek™ Syndrome, which can best be described by the phrase “no way am I giving up a first rounder to sign that guy.” This age tiered system also would create some bargains, as players like Derek Lowe and Manny Ramirez would only cost a second or third round pick to sign, respectively.

Teams that sign multiple Tier One players would be docked an additional pick each time they sign another one of those guys. So, for example, a team would forfeit their first round pick for the first Tier One player, their second and fifth rounders for their second Tier One player, and then their third and fourth round pick for a third Tier One player, and so on. By forfeiting the additional pick, it simulates the value lost by forfeiting a first round draft pick, or thereabout. A similar situation can be developed for multiple Tier Two and Tier Three players as well. I’d keep the top fifteen picks protected from the compensation rules like they are now.

I also propose a slight tweak to the compensation pick system for unsigned draft picks. Right now unsigned first and second rounders yield the same overall pick the following year plus one, while unsigned third rounders yield a pick in a supplemental round after the third round. Why the unnecessary complication regarding unsigned third rounders? I say just use the same system as unsigned first and second rounds, the same overall pick the next year plus one. See, wasn’t that easy? I’d also keep these picks protected from free agent compensation rules like they are now.

Lastly, it’s impossible to write a post about overhauling the free agent compensation system without mentioning the Elias rankings. The current Elias ranking system uses deeply flawed and outdated statistics to rank players (according to Eddie Bajek of Detroit Tiger Thoughts, who reverse engineered the Elias Formula last year), stats like wins, winning percentage, earned run average, runs batted in, and total chances. Total chances! It’s time for baseball to get out of the Stone Age and shun team-dependent stats such as those in favor of advanced metrics. I’m not going to do Elias’ job for them, but I would recommend stats like FIP, VORP, wOBP and UZR, use of park and league factors, and I’d even like to see some positional adjustments included as well (20 HR shortstops > 20 HR corner outfielders). Obviously playing time (innings, plate appearances, etc.) and time spent on the disabled list would also have to be considered.

I’m not the best person in the world when it comes to explaining things, so let’s summarize in bullet point format:

Fix the Elias rankings!

Teams get two sandwich round picks for losing Type-A’s, one for losing a Type-B

Picks in the compensation round are ordered by Elias rankings, not reverse order of the standings

Teams that sign Type-A free agents forfeit draft picks according to a three tiered system based on the player’s age

Unsigned first, second and third round picks result result in a protected compensation pick at the same overall pick the following year, plus one

Compensation picks for unsigned draft picks, as well as the top fifteen picks of the first round would remain protected from free agent compensation rules

To get an idea of how this system would affect the draft, check out this spreadsheet which shows what the ’09 draft order would look like based on this winter’s free agent class (and, sadly, this year’s Elias rankings). As you can see, the Yanks would have forfeited their first through fifth round picks due to the signings of Teixeira, Sabathia and Burnett, but would still have the Gerrit Cole and Scott Bittle compensation picks at their disposal. The Halos would hold five of the first 42 picks because they would retain their own first round pick (Brian Fuentes would be considered a Tier Two Type-A free agent, thus penalizing them a second rounder) while gaining four compensation round picks for the losses of Teixeira and Francisco Rodriguez.

So let me know what you think. Fixing MLB’s free agent compensation system isn’t tough, it just requires an acceptance of state-of-the-art statistical information and some thought.